Not All Bitcoins Go to Heaven

Only recently a story has arisen in media that James Howells, an IT specialist from Wales had thrown away somewhere around 7500 bitcoins. Little did he know that he blew his chance of becoming a millionaire.

15 Total views

0Total shares

Now there are about 11 million bitcoin circulating in the net, but how much of it is lost? Only recently a story has arisen in media that James Howells, an IT specialist from Wales had thrown away somewhere around 7500 bitcoins. Little did he know that he blew his chance of becoming a millionaire. While this article is being written, one BTC cost $ 809. Just to add one final blow, this year bitcoin has already jumped over the $ 1000.

But, let’s leave the unaccomplished moneybag and speak about more tragic consequences of situations such as one Mr. Howells got into. As anyone who is a bit interest in cryptocurrency knows, bitcoin was designed to be limited to a certain amount and as more of it comes into circulation the slower becomes the emission process. When the number of bitcoins hits 21 million, the emission stops and that’s it. Coming back to Howells story, his 7500 digital coins are irreversibly lost not only for him but also for all the cryptocommunity.

To understand the scale of the problem let us make a comparison. Taking into account current prices for both bitcoin and gold, losing so much coin is like throwing a lump of gold with a mass of tons into space.

No one actually knows how much bitcoin is gone from the face of this world and according to Sarah Meiklejohn, researcher from the University of California, San Diego. However, that is not all. We can’t even be sure if the coins are just inactive or have already left for the better world by just looking at block chain. What can be seen from the latter is the last time that digital currency was used for a transaction, though it doesn’t reveal much.

The only occasion where we can mostly be sure about the “frozen” state of bitcoin are the big traders such as Mt.Gox. These have enormous amounts of coins shut off from the net and waiting their time. Maybe not the most elegant solution it surely keeps the digital thieves away.

Speaking of Bitcoin as of digital currency, its finite property makes it deflationary. The fiat currencies on the contrary are mostly inflationary, losing their cost as more of them is issued on the market. If there is not enough euros it can be printed, if there is not enough bitcoin, its price is going higher and people start to trade smaller portions of. Thankfully, the minimum amount of this cryptocurrency is 100 billionth part of bitocoin, called satoshi (in the name of its creator Satoshi Nakamoto).

While stockpiling digital coins is something that promises great profit due to the growing price, the U.C. Berkley researchers have written in their paper that hoarding can lead to a disaster.

"As hoarded bitcoins vanish from circulation, transaction volume will dwindle and block creation will become less proftable (fewer fees to collect). If circulation drops too much, it can precipitate a loss of interest in the system, resulting in 'bit rot' and verifer dearth, until such point that the system has become too weak to heal and defend itself."

Which is why their proposal is creation of a new cryptocurrency, based on the Bitcoin that will have a built-in “decentralized inflationary feedback”.

Well, let the theorists argue about what will benefit more for the future of bitcoins. We can only suggest not throw away your assets so you wouldn’t dig through the Welsh landfill with a dying hope of finding them.